United Parcel Service (UPS 0.86%) is back in the bargain bit. As of this writing, shares of the package shipping company trade under $90, a level they haven't seen since before the COVID-fueled e-commerce surge that made it a household essential. Back then, it was a lifeline for locked-down lifestyles. But now? It's a delivery company that's trying to find its next growth lane.
And yet UPS's fundamentals aren't exactly broken. In fact, the company is growing more efficient. Plus, let's be real: With a dividend yield hovering around 7.5%, even the most cautious investor has to ask if this a rare value play or a trap wrapped in brown paper?
Let's take a closer look and see if UPS is a buy right now.
A business in limbo
Let's start with the rough part: the second quarter. It wasn't a disaster, but it wasn't the kind that gets investors fired up either. Revenue slipped for the fourth time in five quarters, landing at $21.2 billion, down nearly 3% from last year. Profits fell faster than sales, with earnings per share coming in light and net income sliding almost 9%.
Volume trends told about the same story. The repeal of the de minimis exemption -- which once let low-value imports from China pass through without duties -- has hurt the China-to-U.S. express lanes, one of UPS's highest-margin routes. Those shipments are down about 35% year over year, which not only hurts sales but can also leave expensive aircraft with underutilized space.
Zooming out a bit, it's clear that the competitive landscape isn't helping either. Both Amazon and Walmart are eating market share with in-house delivery networks. Regional couriers are also becoming both faster and cheaper. The total addressable market is growing -- parcel volumes reached about $24 billion in 2024, an increase of 4% -- but UPS's slice is shrinking.
These aren't numbers any UPS investors wants to hear. And yet they don't tell the full story.
Image source: Getty Images.
UPS's business is getting leaner
Here's the thing: UPS knows it needs to change. And it's already making cuts to strengthen its balance sheet. The company has already announced plans to eliminate 20,000 jobs, close 73 facilities, and refocus on higher-margin segments of its business per its "Efficiency Reimagined" plan. Earlier this year, the company made the crucial decision to pull back from Amazon, a high-volume client but with thin margins on per-package deliveries.
True, high tariffs are likely going to test whatever margin gains UPS can eke out. But the company is shifting gears. Its China-to-rest-of-world shipments, for example, climbed more than 22.4% last quarter, while India-to-Europe nearly doubled. It's not a full offset (and management isn't pretending that is it). But its a strategic pivot that helps profit move in the right direction when a core lane goes cold.
Healthcare logistics is another bright spot. It's the kind of business that doesn't rise and fall with holiday shopping or the latest import policy. Demand for shipping pharmaceuticals, vaccines, and other medical products is steady, often super urgent, and almost always high margin. The company's $1.6 billion agreement to acquire Andlauer Healthcare Group earlier this year is a clear signal that UPS sees this lane as a potential growth engine.
Patience required (dividends included)
UPS isn't likely going to stage a dramatic rebound anytime soon. Tariff headwinds mixed with low consumer confidence and a lack of guidance is a recipe for caution, and investors shouldn't overlook those problems because their eyes are fixed on that juicy dividend.
At the same time, UPS looks severely undervalued. It currently trades at roughly 13 times trailing earnings, which is below its historical average. That pricing bakes in a lot of near-term uncertainty as well as leaves room for upside if margins stabilize. For long-term investors, buying a global logistics leader at this kind of multiple, with this kind of yield, is the sort of math that can work out over a patient horizon.
